Dr. Gabriel Ogbechei, GMD Rainoil Limited
-By Felix Douglas
…Subsidy gulps N102.96 billion in March 2021
…Deregulation will drive down PMS pump price
…PIB to address lingering issues in petroleum industry
…Massive investments and job opportunities through gas
Rainoil Limited, one of Nigeria’s oil trading companies was incorporated in 1994 and commenced operations and leased first station in Osun State in 1997 essentially by supplying diesel and subsequently, Low Pour Fuel Oil (LPFO) to industrial customers. The company built its first petrol station in Igbodo, Delta State in 1999.
As the company progressed, it had its three depots in Delta, Calabar and Lagos in 2010, 2015, 2019 with Liquefied Petroleum Gas (LPG) depot in 2020 built in Lagos.
For over twenty-three years, the indigenous oil company has invested across the entire value chain of the downstream sector in Nigerian oil and gas industry. These investments includes: 106 retail outlets, bulk storage of 150 million litres in Lagos, Delta and Cross Rivers States. It has 160 product trucks, 1 shipping vessel and 8000MT of LPG storage.
No doubt, with a population of over 200 million people, Nigeria remains the top market in the sub-region and Rainoil has a prospect for growth in the downstream sector.
Speaking at a webinar session organised by the National Association of Energy Correspondents (NAEC), titled ‘Deregulation and Sustainable National Energy Future through Natural Gas’ Group Managing Director, Rainoil Limited, Dr. Gabriel Ogbechie explained to energy correspondents that the Nigerian National Petroleum Corporation (NNPC) remained the sole importer of Premium Motor Spirit (PMS) and the Federal Government paid N725bn as petrol subsidy in 2019. The government spent over N101.65bn on subsidy in Q1 2020.
Due to Covid-19, subsidy was discontinued in March 2020 by the Petroleum Products Pricing and Regulatory Agency (PPPRA), following the crash in the global crude oil price modulation. PMS pump price was moved from N145 litre to N125/litre as landing cost of PMS was N99.44/litre.
The Rainoil GMD told energy correspondents that as crude oil prices recovered and PMS landing cost increased, pump price were moved to N143.8 litre in July 2020, N151.56 litre in September 2020, N162 litre in October and N165 litre in November 2020.
In February 2021, subsidy element returned as crude price hit $64/bbl and landing cost of PMS increased to N186.33 litre while pump price remained at N165/litre.
Current Uncertainty over Petrol Price and Challenges
Dr. Ogbechei noted that in March 2021, crude oil price averaged $67/bbl thereby increasing landing cost of petrol to N189.61 litres. Fuel subsidy in March 2021 is estimated at N102.96bn. Thus the government is spending huge amount of money on subsidy.
However, lack of clarity from the Ministry of Petroleum Resources on pricing regime has resulted in inconsistent communications from industry agencies, increased speculation by marketers, inconsistent supply of product, panic buying by the public, hike in transportation fares and product prices. These had multiplier effects because increase was initially announced but even when it was reversed, it had no meaningful impact.
Prospects for Marketers in a Fully Deregulated Downstream Sector
Dr. Ogbechei asserted that government spent N3 billion every day for each buyer of PMS and if the downstream is deregulated money spent for subsidy will be saved while the sector will be competitive. For instance, diesel has been deregulated without scarcity because every seller has the right to sell and buyer in turn could make choices from where to buy.
Deregulation is cost savings for the government and increased funds for critical infrastructure hence about N10.413tn spent on fuel subsidy between 2006 and 2019.
Through deregulation, marketers will be able to freely source products and leverage supply chain options leading to a more level playing field. Increased competition will improve efficiency and customer-service to allow for better planning and forecasting. A fully liberalized sector will also attract further Foreign Direct Investment while competition drives down PMS pump price.
Prospects of the Downstream Sector after the PIB
The Rainoil GMD disclosed that Petroleum Industry Bill (PIB) will take over most of the upstream regulatory functions of the Depart of Petroleum Resources (DPR) responsibilities which includes: administration, enforcement of policies and regulations on upstream petroleum operations, enforce compliance on the issuance of licenses and leases, publish upstream sector reports and statistics.
On the Nigerian Midstream and Downstream Petroleum Regulatory Authority, Petroleum Equalization Fund (PEF) and Petroleum Products Pricing Regulatory Agency (PPPRA) will be merged into one regulator with technical and commercial regulatory responsibilities. Their duties will be to administer and enforce policies, laws and regulations for midstream and downstream petroleum operations. Monitor the market and promotion of competition.
The PIB provides that the pricing of petroleum products in the downstream product sector shall be deregulated to ensure market-based pricing, adequate supply and removal of economic distortions and creation of a fair market value for petroleum products in Nigeria’s economy.
The Federal Government transition from traditional fuels for cooking to cleaner LPG fuel in its National LPG Expansion Programme will eliminate gas flaring using the Nigeria Gas Flare Commercialization Programme but almost 8 billion cubic meters of gas flared annually.
Dr. Ogbechei added that Nigeria is the seventh-largest gas flaring nation in the world and the country lost N300bn to gas flaring in 7 months in 2020. He said the country’s objective of reaching zero flaring by 2030 should be actualized.
The Rainoil GMD posited that government’s policy on alternative energy and the global drive for energy transition is a good idea. Promotion of Compressed Natural Gas (CNG) as an alternative cheaper fuel and deepening of autogas as alternative to petrol are in the works by the government.
CNG is providing kits for pilot conversion of 1 million cars target of over 2,000 filling stations within six months by establishing N200 billion infrastructure funds by the Central Bank of Nigeria (CBN) to support autogas facility. Nigeria current reserve estimate of natural gas is over 60 trillion cubic feet (tcf).
Dr. Ogbechei observed that government encourages the use of CNG to reduce PMS and expunge subsidy. If there is a massive shift to CNG, it will be of immense benefits to the country because petroleum products are cheap in Nigeria compared to other countries within its borders. He advocated for a specialized intervention mechanism to deepen gas usage in the country through equity investments.
Opportunities for Marketers
There are lots of opportunities in the sector, Nigeria requires about $6bn worth of investment and marketers can leverage in it by investing in gas adoption and utilization through LPG bulk storage, trucks, filling plants, skids, gas cylinder and LNG plants among others.
Jobs will be created with an estimate of over N10 billion ($27 million) will be generated by switching 50% of kerosene and firewood users to LPG. Proper channeling of flared gas could impact the country’s gross domestic product by up to $1 +billion per year. This is a potential to create over 1 million jobs, 600,000 metric tons of LPG per year and generate 2.5 gigawatts of power.
Responding to questions at the webinar, Dr. Ogbechei told energy correspondents that the passage of PIB will be to Nigeria’s advantage but vested interests want it delayed. He suggested that people should go to their constituencies and convinced legislators to get the bill passed into law.
On the 650,000 capacity Dangote refinery, it can only operate efficiently in a deregulated environment. Therefore, it will not augur well for government to fix price for a privately owned refinery.
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